advanced contract drafting and … adv cont... · “we begin with the obvious truism that the...

ADVANCEDCONTRACTDRAFTINGANDNEGOTIATIONFORIN‐HOUSECOUNSEL

THEMISSOURIBARCONTINUINGLEGALEDUCATIONPROGRAM

September22,2015

JamesP.Pryde MarcL.KuemmerleinBryanCave Sprint

1Copyright 2015 James P. Pryde and Marc L. Kuemmerlein (images from other sources)

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Criticalprinciples

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Whoistheclient?

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“Webeginwiththeobvioustruismthatthegeneralcounsel’sonlyclientis(orshouldbe)

thecorporateentity.”

IndispensableCounsel,TheChiefLegalOfficerintheNewReality,E.NormanVeaseyandChristineT.DiGuglielmo(Oxford2012)

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“[A]lwaysrememberwhoistheclientandbethebestadvocateforthelong‐terminterestsofyourclient...manylawyerscausethemselvessomuchtroublebyforgettingwhotheclientis....Icansaywithabsolutecertaintythatmoretrouble,moreconsternationandmoreruinedprofessionalcareerscomefromviolatingthisonerule...” 5

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“...[more]thananyotherandit’swheresomein‐houselawyersgowrong,aswell,thinkingthatthebusinessunitinwhichtheyworkistheirclientorthebusinessleaderwithwhomtheyworkistheclientortheprojectthattheyareworkingonistheirclient.[A]tIBMwecontinuetokeepthisissueintheforefrontofoutglobalteam.”

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“...Iusedtheoccasionofmyfirstpresentationtospeakonthisverytopic–whoistheclient– andIemphasizedwhotheclientisnotandthenIemphasizedtherealclientisIBM,first,foremostandforever.”

RobertC.Weber,retiredSeniorVicePresident,LegalandRegulatoryAffairsandGeneralCounsel,IBM,ConvocationonLawyerIndependenceandIn‐HouseCorporateCounsel,JournaloftheNewYorkStateJudicialInstituteonProfessionalismandtheLaw(2012) 7

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Theattorney’srole

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JoeJamail

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“Today,manylawyersandbusinessmenalikehavecometoacceptthepropositionthattheclientisbestabletojudgewhatheneeds– moresothanthelawyer– orhemustbereadytodowhatevertheclientwishes. ...Whenalawyeraccedestothis,thelawyerhassoldawaytheonlythingofvaluethathehas– hisindependence – forifthelawyerstandsreadytodowhatevertheclientwants,whatthehelldoestheclientneedwithhim.Hedeprivestheclientoftheonethingthattheclientismostentitledtohave– thebestofadvicethatalawyercangivehimastowhetherwhattheclientwantsdoneshouldreallybedoneornot.Whatmakesusprofessionalisourinsistencethatinlegalmatters,wesettheparametersofwhatwewilldo,andwhatwillbedoneandwhatwewon’tdo.Andtheclientcannotsetthoseparametersforus.Wetelltheclientwhatisintheclient’sbestinterests,notinourbestinterests....”

JoeJamail,talkattheRockCenterforCorporateGovernance,StanfordLawSchool(May17,2011) 13

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“Inanorganizationintheworldweliveintoday,nofunctionsetsthecultureoftheentirecompanythewaythelegalfunctiondoes.Yousettheboundariesofwhowecanbe.Youdefinethefieldthatweplayon.”

JeffImmelt,GECEO,introducingBrackettDennistonIII,SVPandGeneralCounselofGeneralElectric

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Integritas

Consonantia

Claritas

ThomasAquinas 15

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ThestonemasonsofCologne

From“MarksofExcellence”,PerMollerup(Phaidon)(imagesfromFranzRziha,StudienuberSteinmetz‐Zeichen(Vienna,1883))

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Skills

Knowledge

Creativity19

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SkillsMasterofTechnique

KnowledgeMasterofConstruction

CreativityMasterofStyle

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ameetingoftheminds

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ameetingoftheminds

theSocraticmethod

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Excellenceinauthorshipisbettermanagement...

andbetter

Leadership.

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Theconceptofbeingalawyershouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelatewithsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.

BenjaminHeineman,Jr.Lecture“LawandLeadership”,YaleLawSchool,2006

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Theconceptofbeingalawyer shouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelate withsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.

BenjaminHeineman,Jr.Lecture“LawandLeadership”,YaleLawSchool,2006

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Theconceptofbeingalawyer shouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelate withsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.

BenjaminHeineman,Jr.Lecture“LawandLeadership”,YaleLawSchool,2006

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“BoilerPlate”Finetuningthefineprint

• Itcanbecritical.

• “Itdoesn’tmatter”–

• UNTILITMATTERS!

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SettingthePlayingField• NormallytheBoilerPlateisattheENDoftheContract– overlooked.

• Businesspeoplebelieve:“Justlawyerstuff”– (i.e.,notimportant)

• Everyoneistiredbecause“themainpartofthecontractisdone.”

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Boilerplate?Whyisitcalled“boilerplate”?

Isanythingreally“boilerplate”?

Somelitigatorssay“boilerplate”isthemostimportantpartofacontract.

Thefineprintcankillyou!30

Boilerplate?Whyisitcalled“boilerplate”?

Isanythingreally“boilerplate”?

Somelitigatorssay“boilerplate”isthemostimportantpartofacontract.Thefineprintcankillyou!

(It’sall fineprint.)31

Boilerplate

GreatResource:TinaL.Stark,“NegotiatingandDraftingContractBoilerplate”,(ALMProperties,Inc.2003)

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SpecificProvisions

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AssignmentofContract• “Affiliate”transfers?• Purpose– creditworthycounterpartyorotherreasons(e.g.,competitor;managerialcompetence)?

• Cantheconsentbeunreasonably“withheld,conditionedordelayed”?

• Is“changeofcontrol”anassignment?• Anti‐assignmentprovisions

• Strictlyconstrued• Makingassignmentvoid

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FurtherAssurances• Limits– “takesuchfurtheractionsasmaybe[reasonably]requiredtocarryouttheprovisionsofthisAgreement”

• Aspectsofperformancenotspecificallyincludedbutnecessaryordesirable– the“catch‐all”

• Whopayscosts?• Scopechanges?• Transitionservices?

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PublicAnnouncements•Whylimitandcontrol?

• Ifpubliccompany,maybeSECrestrictions

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LegalFees;CostsofEnforcement

● Oneofthefirstprovisionstocheckwhenadisputearises.

● Thecostoftheprevailingpartyinlitigation?Orthecostsincurredinconnectionwithenforcingcontractrights.

● Costsincurredforin‐housecounselinvolvement? 37

Notices•Mainparty?Whowithintheorganization?

• “Copy”‐ issendingthecopyrequiredtobevalidnotice?

• Electronicnotices?•Whendeemeddelivered?

• catchall– attheveryleastwhenactuallyreceived

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Interpretation• Singular/plural,viceversa• Gender• “Including”means“includingwithoutlimitation”

• and/or?• “Agreementisaresultofnegotiation,andthusnotconstruedagainsteitherparty”–enforceable?

• Foreignlanguages 39

Severability• Doyoureallywantunqualifiedseverability?

• Istheresomepartofthecontractthatissovital,thatifitisunenforceable,thentheentirecontractshouldbein“question”?

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EntireAgreement• Besuretheclauseisaccurate.• Otherdocumentsmaybepertinente.g.,confidentialityagreement

specifications;schematics;RACI;RFPdocuments

otheroutsidedocuments• Paroleevidence

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NoThird‐PartyBeneficiaries• Isthestandardclauseaccurate?

• Ifindemnitycovers“affiliatesandemployees,”thenaretheaffiliatesandemployeesintendedtobethird‐partybeneficiariesofthemainagreement?

• Isaprospectiveassigneeabeneficiary? 42

GoverningLawLawsdodifferinvariousjurisdictions.Thisisasubstantivedecision.

Delaware?NewYork?California?

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Jurisdiction/Venue

•Becarefulwithexclusivejurisdiction(whatifnopersonaljurisdictionisavailable)?

•Venue– waiverofchangeofvenue?

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Whenitneedstogetdonetoday!

• Draftingunderpressure– deadlines• Breakingthecontractintoparts• A“spaceofquiet”‐‐

• Automatingthecontractprocess– toolsandsystems• contractmanagementsoftware‐‐Apttus 45

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WaiverofJuryTrial

•Desired?

•Enforceable?

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ForceMajeure• WhatisforcemajeurebeyondactsofGod?Thisclausecanbeusedtoshiftsignificantrisk!• Changesinlaworregulatorylandscape?• Laborshortage?• Strike?• Unabletogetrawmaterials?• Poweroutages(shouldcounterpartyhaveback‐uppowerespeciallywithcallcentersandserverfarms)?

• ActsofWarandcivilunrest?• Changesinbusinessmodel?• Industrytrends?

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DisputeResolution•Seniormanagement•Mediation•Non‐bindingarbitration•Bindingarbitration•Court

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DraftingandNegotiation

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TheProcessesAreIntertwined• Thefirstdraftcansetthetonefortheentireprocess.

• “Too”one‐sidedcancausetheothersidetobecomeentrenched.

• “Too”easy,andyoumayhaveleftpointsonthetable

• Discussprocessstrategywithyourteam.50

1+1=3+• Insidecounselworkingwithoutsidecounselmeanssynergies,sharedexpertise,checksandbalances.

• Productivecollaborationamongteammembersyieldsinsights,considerationsandhigherquality.

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ContractTerms• InadditiontoBusinessTerms,6mainpartstocontractdocument:

• Definitions• RepsandWarranties• Covenants• Conditions• Indemnities• BoilerPlate

• All haveanimpactonRiskAllocation.52

Definitions

• Importanceof“Definitions”

•Placingdefinitions:•Atbeginningofthecontract?•Withinthecontract?•Orinanappendixattheend?

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RepresentationsandWarranties

• Aretheynecessary?• Acquisitions,yes.• Commercialcontracts?Ifyes,whatrepsarereallyrelevant?

• Repsspeakasofaspecificdate.• Atsigning?• Anytimeelse?

•Websiteincorporationfordisclosure? 54

Covenants• Ongoingagreements• Donotmixrepresentationsandcovenants.• Websiteincorporation(“Youwillfollowourproceduressetforthonourwebsiteasmodifiedfromtimetotime.”)

• Remediesforbreach?– damages?(increaseprice?)– specificperformance– terminationofagreement– consequentials?

Lostprofitsthatareforeseeable?

• Auditandinspectionrights ‐‐ limits? 55

Conditions

•Whatmustbesatisfiedbeforepartiesareobligatedtoperformthecontract?

•Areconditionssobroadthatcontractisreallyjustanoption?

• e.g.financingcondition56

Indemnity• Isitnecessary?• defend,indemnifyandholdharmless• Whatifnobreachactuallyoccurred?• Loserpaysattorneyfees?• Controlofdefenses– Normallycontrolledbyindemnifyingparty,butarethereexceptions?– Conflictofinterest(e.g.,differentdefensesareavailable)?

– claimagainstmaterialcustomerorsupplier?– potentialinjunctionoradverseeffectonbusiness?– businessreputation?

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AvoidingAmbiguousPhrases(unlessyouwantambiguity)

• Reviewspecificallyfor:“Arethereotherpotentialinterpretationsofthesentence”?

• Avoidpronouns.• Remove“legalisms”,archaiclanguage– ifcontractgoestocourt,12layjurorsmustunderstand.

• Understandthespecificmeaningofvariouswordsandphrases– thenuances.

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ResourcesandCollaborators

•Finance•Management•Technicalspecialists•Legalspecialists(insideandout)•Outsidecounsel

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RecommendedResourcesonDrafting● DraftingContracts:HowandWhyLawyersDoWhattheyDo,TinaL.Stark(WoltersKluwer2014);alsoNegotiatingandDraftingContractBoilerplatewww.starklegaled.com● AManualofStyleforContractDrafting,KennethA.Adams(ThirdAddition2013).www.adamsdrafting.com● LegalWritinginPlainEnglish,BryanA.Garner(SecondEdition2013),aswellasotherworks.www.lawprose.org.● WritingtoWin,TheLegalWriter,TheCompleteGuidetoWritingStrategiesthatWillMakeYourCaseandWin,StevenD.Stark,(CrownPublishingGroup2012)www.starkwriting.com● AGuidetoContractInterpretation,VincentR.MartoranaandMichaelK.Zitelli,ReedSmith(2013);seealsoPracticingLawInstituteprogramonLegalDraftingbyVincentR.Martorana.Also“CriticalThoughtsonContractDrafting”www.draftingpoints.com

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RecommendedResourcesonDrafting● Plain English for Lawyers, Richard C. Wydick, (Carolina Academic Press, 2005)

• Omit Surplus Words• Use Base Verbs, Not Nominalizations• Prefer the Active Voice• Use Short Sentences• Choose and Arrange Words with Care• Avoid Language Quirks• Punctuate Carefully

● The Contract Negotiation Handbook, An Indispensable Guide for Contract Professionals, Steven R. Guth (Lulu Press 2008)

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RecommendedResourcesonNegotiation• NegotiatingGenius:HowtoOvercomeObstaclestoAchieveBrilliantResultsattheBargainingTable,DeepakMalhotraandMaxH.Bazerman(HarvardBusinessSchool;Bantam2006)

• 3‐DNegotiation:PowerfulToolstoChangetheGameinYourMostImportantDeals,DavidLaxandJamesK.Sebenius(HarvardBusinessSchoolPublishing2006)

• Dealmaking:TheNewStrategyofNegotiauctions,GuhanSubramanian(W.W.Norton2010) 62

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“Youdoacontractnowandeveryoneishappythecontractisdonebutyoureallywon’tknowifit’sagoodcontractforfive,six,sevenyearsdownthelineanditcouldbethatthechampagneyouaredrinkingnowturnsintoscotchbecauseit’sabad,badcontractifyouhavetoeitherterminateormodify.SoIthinkovertimethecompanywillseethevalueofthelawdepartmentwhenthecontractseemstowork.”

LouisJ.BriskmanExecutiveVicePresident&GeneralCounselCBSCorporation

QuotetakenfromtheJournaloftheNewYorkStateJudicialInstituteonProfessionalismintheLaw,AConvocationonLawyerIndependenceandIn‐HouseCorporateCounsel (November9,2012) 63

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ThinkingBeyondtheDocumentImplementationandDisputeResolution

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ImplementationandPerformance

ReframingandrefiningthecontractCoursecorrectionsWhentobeformal;whentobeinformalAdministrationandDisputes

Greatresource:ThePointoftheDeal:HowtoNegotiatewhenYes isnotEnough,DannyErtelandMarkGordon(HarvardBusinessSchoolPress2007) 65

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Bringingitalltogether–

alifelongprocess

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